DALLAS--Marine underwriters here were advised they need a better understanding of the cargo transportation process as greater security requirements make shipping operations more technologically sophisticated and complex.

Erin Thomasson, vice president, risk management and insurance at Expeditors International of Washington, gave that counsel in a talk at the Inland Marine Underwriters Association's 75th Annual Conference.

Ms. Thomasson said underwriters are part of a larger supply chain that extends beyond the U.S. distribution channels they insure. She explained that 12-to-15 companies all around the world will likely touch a shipment before it makes it to the shelf of a store.

But U.S. underwriters tend to understand only a small part of the goods transit process, Ms. Thomasson said, and their expertise is limited to only what they are specifically insuring, such as the trucking company in the United States.

"Our experience with underwriters is they tend to understand their little piece...They don't appreciate the fact that the trucker is part of a bigger supply chain that is global in nature," she said.

The need for greater knowledge by underwriters is especially significant today given the level of coordination needed to ship goods internationally, she explained.

The business of shipping goods used to be, and still is to a degree, siloed. But increasing security and certification requirements since 9/11 are changing that, noted Ms. Thomasson.

In the wake of the terrorist attacks in the United States., the government saw the international supply chain as insecure and vulnerable, and began to pay more attention to it, creating the Customs Trade Partnership Against Terrorism C-TPAT.

Ms. Thomasson said that to become C-TPAT certified, anyone that touches the freight being carried into the country must meet basic security requirements. The benefit is that a C-TPAT-certified transporter of cargo can get through customs more quickly, but it also means that many different individual vendors that handle the freight up to the point when it reaches the border must be validated.

"As we look at the vendors in the supply chain, that means every trucker that this importer does business with has to be validated," Ms. Thomasson said.

Additionally, she said, a law passed in August 2007 mandates that 100 percent of all cargo transported on passenger aircrafts must be screened by the Transportation Security Administration.

The screening applies to both domestic and international flights. "In addition to the x-ray process, there has to be something called the 'chain of custody,'" which involves more validation of truckers as cargo is transported to the airport. "Again, this raises the bar substantially for who can do this," Ms. Thomasson said, noting that many truckers may not be able to pass the required background checks.

All of these new requirements mean that greater coordination is needed among all players in the process, including insurance brokers, insurance companies, finance departments, logistics, etc., Ms. Thomasson said.

Additionally, she remarked that larger companies involved in the supply chain are gaining influence over the process while smaller companies are struggling to keep up.

Speaking to Expeditors' experience, Ms. Thomasson said the company has evolved from just a mover of freight to a "logistics supply chain management organization."

"What's changed is breadth of organization," she said. The company now provides more services and controls more within the supply chain.

For example, Ms. Thomasson said the company now owns an independent insurance brokerage operation that competes with some of the mega brokers for logistics-oriented insurance coverage.

The level of coordination and sophistication required today may also spell doom for some smaller companies involved in the transportation of cargo. "With the security changes and the pressures on the smaller companies, I really see a lot of smaller companies disappearing. I'm not sure how they're going to keep up," she said.

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Marine Underwriters Must Expand Focus, Says Expert

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